Atlantic Union Bankshares Corporation (NYSE:AUB) is a traditional, diversified bank that has been serving its customers and communities for over 122 years. With nearly $25 billion in assets, Atlantic Union operates in a sweet spot - large enough to be a challenger to the big banks, but still small enough to be responsive and compete against smaller regional players.

Atlantic Union's operating philosophy is centered around soundness, profitability, and growth, in that order of priority. Atlantic Union makes loans, takes deposits, and provides fee-based services to its customers under its well-established brand. This straightforward model has stood the test of time and has enabled Atlantic Union to navigate various economic environments.

Financials

In the second quarter of 2024, Atlantic Union reported net income available to common shareholders of $22.2 million, or $0.25 per common share. On an adjusted operating basis, which excludes certain one-time items, Atlantic Union reported earnings of $56.4 million, or $0.63 per common share. This translated to an adjusted operating return on tangible common equity of 15.85% and an adjusted operating return on assets of 0.97%.

Atlantic Union's financial performance was boosted by its recent merger with American National Bankshares, which closed on April 1, 2024. The integration of American National has already begun to yield benefits, with Atlantic Union seeing a boost to both net interest margin and bottom-line profitability.

Business Overview

Regarding the macroeconomic environment, Atlantic Union remains cautiously optimistic. Atlantic Union's markets, which are primarily in Virginia and North Carolina, continue to exhibit healthy economic conditions. Virginia's unemployment rate stood at 2.7% in June, well below the national average of 4.1%, while North Carolina's rate was 3.6%. Both states were recently ranked among the top states for business by CNBC, with Virginia taking the top spot and North Carolina coming in at number two.

Atlantic Union's loan portfolio remains stable, with net charge-offs of just 4 basis points annualized during the second quarter, down from 13 basis points in the first quarter. While management expects some normalization in credit quality going forward, with net charge-offs expected to be in the 10-15 basis point range for the full year, the overall credit profile remains strong.

In terms of the loan portfolio, Atlantic Union reported $18.3 billion in loans held for investment, net of deferred fees and costs, as of the end of the second quarter. On a pro forma basis, assuming the American National balances were acquired on March 31, loans grew by $177.6 million, or approximately 3.9% annualized, during the quarter. Atlantic Union expects mid-single-digit annualized loan growth for the remainder of 2024.

Deposits also saw strong growth, reaching $20 billion at the end of the second quarter, up $2.7 billion from the prior quarter. On a pro forma basis, assuming the American National balances were acquired on March 31, deposits increased by $136 million, or approximately 2.8% annualized. Atlantic Union has also increased its use of brokered deposits to take advantage of the inverted yield curve and manage quarter-end declines in certain large and more volatile commercial depositor accounts.

Outlook

Turning to Atlantic Union's financial outlook, the bank provided detailed guidance for the full year 2024 and a targeted fourth-quarter run rate. Atlantic Union expects loan balances to end the year between $18.5 billion and $19 billion, while year-end deposits are projected to be between $20 billion and $20.5 billion.

Fully tax-equivalent net interest income for the full year is projected to be between $730 million and $740 million, with a targeted fourth-quarter run rate of $195 million to $200 million. This is expected to translate to a full-year fully tax-equivalent net interest margin in the range of 3.4% to 3.5%, with a targeted fourth-quarter range of 3.55% to 3.60%. These projections include the impact of Atlantic Union's estimate of net increase in income from the American National transaction.

On the non-interest income side, Atlantic Union expects full-year adjusted operating non-interest income to be between $115 million and $120 million, with a targeted fourth-quarter run rate of $30 million to $35 million. Adjusted operating non-interest expenses for the full year are estimated to be in the range of $445 million to $450 million, with a targeted fourth-quarter run rate of $110 million to $115 million, assuming the full achievement of Atlantic Union's 40% merger-related cost savings.

Based on these projections and targeted fourth-quarter run rates, Atlantic Union expects to produce financial returns that will place it within the top quartile of its peer group, meeting Atlantic Union's objective of delivering top-tier financial performance for its shareholders.

Conclusion

In summary, Atlantic Union Bankshares Corporation is a well-run, diversified bank that has demonstrated its ability to navigate challenging operating environments. Atlantic Union's recent merger with American National Bankshares has already begun to yield benefits, and management is confident in Atlantic Union's ability to continue generating sustainable, profitable growth and building long-term value for its shareholders.